Why is My Country’s Trading Policy Hurting Its Own Economy?
A trading nation is a nation in which foreign trade constitutes a high percentage of its gross domestic product. This means that, when measured on the value of each nation’s goods and services traded each year, the U.S. stands out as the world’s largest trading nation. However, many people are quick to point out the numerous barriers that the U.S. has placed on itself throughout the years. These barriers, many economists argue, are hindering the U.S. from becoming the world leader it could and should be. The commonly agreed problem is that the U.S. is not a free market. In this article, I will show how these barriers, if not addressed, can cause the United States to slide down the economic ladder and away from its historic preeminence.
One problem that the United States has found over the years is that it attempts to use all of the tools at its disposal to promote its interests on the global stage. One of these tools is the protectionist measures that it has taken against individuals or companies that try to bring their goods and services to other countries. Tariffs and other types of barriers to trade are common measures that have been implemented by the United States and other nations around the world. However, a trading nation that relies on protectionism to encourage exports should quickly realize that its efforts are not working.
Protectionism in international trade does not only work in one way. In fact, it works against both parties. Since the trading nation uses protectionist measures to dissuade other countries from offering their products and services at less than full price, other countries feel threatened and will look to do business elsewhere. When this happens, the supply of goods and services will fall significantly and unemployment will rise. While unemployment is obviously bad for any nation, it is especially bad for those countries that rely heavily on exporting their goods and services.
How can a trading nation protect its interests around the world without using protectionist measures? The answer is very simple: it must rely on other means, such as subsidies. A trading nation can make up for its loss of sales by allowing cheaper goods and services to be imported into the country. In addition, it can subsidize its local production of goods and services, so that its domestic market receives what it needs while foreign goods continue to be imported at higher prices.
However, multilateral institutions, such as the World Trade Organization, have made it clear that nations that refuse to abide by multilateral trade agreements will be sanctioned by the organization. So, if a trading nation insists on protectionism, then it must expect to lose access to international trade based on how other nations perceive its behavior. Therefore, it’s pretty clear what’s going on here: a trading nation is using protectionism to increase its domestic sales, while the rest of the world decides that it doesn’t want its goods and services to be taxed.
A good alternative to protectionism is freer international trade, with all countries setting their own minimum rates for tariffs and other fees. A true Trading Nation would never think twice about allowing its consumers to purchase products from other nations at lower costs, as long as they pay the appropriate duty. So, a wise person ought to ask the following question: why is my nation’s Trading Policy hurting its own domestic economy? If you truly believe that the only way you can protect your domestic market is by having a high minimum priced product and charging customers more for its higher quality, then why do you think the rest of the world thinks differently? You see, it’s not the government’s fault, and it’s not the government’s trading policy, either. It’s the free market, stupid.